Paul Krugman is fretting that the Organization for Economic Cooperation and Development is listening to the “Pain Caucus“, since it is recommending austerity measures.
Not to worry Mr. Krugman, Team Profligacy is on the case!
Europe is eager to begin paying down sovereign debt. The US wants to see Germany and France continue stimulus measures. (…)
Washington is concerned that, should Europe overreach in its rush to cut government spending, it could endanger the fragile economic recovery that has taken hold on the Continent and around the globe. In particular, the US would like to see countries like Germany and France continue efforts to stimulate their economies.
During a stop in London on Wednesday, Geithner held discussions with his British counterpart George Osborne. According to a report in the Wall Street Journal, Geithner underlined the dangers should Europe turn away from fiscal stimulus.
Christina Romer, who heads up the White House Council of Economic Advisers and who was with Geithner in London on Wednesday, said that European countries should be wary of cutting spending too quickly. “There is a certain amount of rush for the exits on fiscal policy,” she told reporters. The US is hoping that stimulus-fueled growth will ultimately result in higher tax revenues which can then be used to pay down debt.
Paul Volcker, former chairman of the US Federal Reserve and an economic adviser to US President Barack Obama, also argued recently that Europe should focus on encouraging growth rather than cutting spending. Referring specifically to France and Germany, he said in an interview with Bloomberg radio earlier this month that “it would help a lot if the rest of Europe, the strong part of Europe … if they have more growth, that will help these countries on the periphery.”
